The Balance Scorecard of Tesco
Tesco is the largest retailer in the UK and the third-large supermarket worldwide with total amount of sales exceeding £19.4 billion in 2010. It was originally specializing in food product, but in recent years it has provided different products and services from clothing, telecoms to financial services. Additionally, Tesco is the most extensive online grocery retailer in the world and it recognizes product images and pack information are essential for online shopping. In recent past, huge development has been made on international strategies. Its store are located in 13 countries and number would be still increasing as it has diverse strategies in order to satisfy different locations. The principle of Tesco is letting customers know they can pick what they want, when and where they want it.
Balanced Scorecard: The Balanced Scorecard is a comprehensive framework to achieve the company’s vision and strategy. In addition to measuring the financial side, the work surface also is added to make up for traditional performance evaluation, which emphasizing on financial data. Therefore, the Balanced Scorecard can be said a new system of strategic management with the company strategy, vision and performance evaluation, and not just a performance evaluation system.
The Balanced Scorecard is divided into four important perspectives, including financial perspective, customer perspective, internal perspective and innovation and learning perspective. Organizations design performance indices basis on the perspectives to measure the performance, the entire sector information and the organization’s strategy and vision, which are matched together to achieve goals. It is to balance the implementation of organizational performance, seeking short-term and long-term goals, financial and non-financial measurable, and the balance between the performance of the external and internal perspectives (Kaplan and Norton, 1996).
1.The Financial Aspect: It can be seen that a business which would be measured their performance by the growth of profit and the improvement of productivity; furthermore those activities can help for addressing the business goal and create the profit for their shareholder. The financial aspect in balance scorecard (BSC) which provides a different perspective for the business which can combine their vision and strategy, moreover it can tell the shareholders they will have better performance in the future. Read Marks & Spencer market structure
Therefore, this perspective that gives shareholder an indicator to understand that what achievements been improved by the strategies and implementation in business. There are many indicators can be measured such as operation profit margin, earning per share (EPS), dividend per share (DPS), return on capital employed (ROCE), profitability in business. Thus, following the case, Tesco, this paper try to exam those figure in order to understand their finance achievements, furthermore try to realize how to use the BSC to achieve the financial goal in Tesco that can ensure the shareholder profit would not loss at this time and the future.
In order to understand what should focus on Tesco’s balance scorecard. There are several general ideas in financial aspects should be understood that can improve the performance:
1. increase the number of customer.
2. develop new products or services.
3. decrease the expenditure. Turning to look the BSC in Tesco, it can be seen that the vision in Tesco’s financial aspect by Tesco’s wheel (graph.1). It focus on how to grow the sales, how to chase profit maximize and how to manage the investment, which help Tesco to pursuit the best performance that taking respond to their shareholders.
Base on the graph.2 that the shareholders can understand that the group sales increased by 6.8%, furthermore the group profit increased by 10.4%, EPS and DPS increased by 9.1%, return on capital employed increased by 12.1%. This entire chart could tell shareholders that their financial performances have better improve than last year. It can be seen that these measurement indicators such as group of sales, group profit, EPS, DPS and ROCE. In order to design the BSC, all these figures might be set a target that increasing by 5% than last year at least.
Therefore, the management level and shareholders both can easily understand that the goal should be achieved by company this year, furthermore, encouraging the company to address the achievement and the shareholders can have confidence that hold the stocks for long time. In order to improve the financial performance in Tesco that can meet the vision of company, it is believed that the price is the key issue and selling point for Tesco. It can be seen that Tesco try to keep their low price strategy to attract their customers and maintain the customer’s loyalty. Furthermore, they have a slogan ‘everyday low price’, and combine with other sales promotion to create higher profit for company.
2. The Internal Business Process Aspect:
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Business vision, mission, strategy and objectives are the direction of business enterprise development. Tesco’s internal management vision is to provide low prices and high quality products for everyone and effectively reduce emissions of carbon dioxide when they are in manufacturing, transportation and sales of the products. Tesco hope to meet customer needs and achieve environmental protection at the same time. Internal management mission is to effectively reduce product waste, improve productivity and reduce production costs. Tesco has stores all over the world and therefore it has different goals in different countries and regions.
In Europe, Tesco’s objective is to strengthen the retail services, provide multiple products, strengthen its market leadership position, etc. In Asia, Tesco want to reduce product waste, improve the rate of supply of goods, etc. In the USA, they want to Increase productivity and reduce inventory waste. Tesco common goal of global is to reduce cost of the product and deliver great value for customers. Tesco have different strategies in different countries, for example, in China, they improve the efficiency and management of the supply chain to reduce costs and therefore companies can reduce product prices to increase competitiveness and provide customers with more affordable products.
In internal business process perspective of balances scorecard, Tesco need to focus on several point. First point is inventory control; retailers are most concerned about the inventory because they sell a lot of different kind of produce and therefore retailer’s inventory is often more than other industries. If company can effectively control and reduce the inventory they will be able to increase liquidity and reduce storage costs. The company can understand the enterprise’s storage management efficiency through stock turnover. From Tesco’s annual report, they want to reduce cost of the product and consequently if Tesco can reduce storage costs they will be able to effectively reduce the cost of goods.
Second point is the supply chain efficiency; if the company can improve supply chain performance store will reduce the waiting time for ordering products. If Tesco can effectively control the inventory through improving the supply chain efficiency they will reduce excess or shortage of inventory then company will be able to reduce cost and improve profit. Tesco can understand the efficiency of supply system from the average order waiting time.
The third point is delivery service system efficiency; from the annual report, Tesco delivery service can effectively reduce evening gaps in fresh food by 18%. Therefore, if Tesco can shorten the time for delivery Customers will be more willing to use it then Tesco will reduce the time of inventory of fresh food and provide fresher, high quality food to customers.
The fourth point is customer Checkout waiting time. From annual report, it shows reduce customer waiting time that will be able to improve customer satisfaction. If Tesco can improve the efficiency of checkout they will effectively increase customer volume and customer satisfaction. Companies can understand the customer checkout speed through queuing theory then Tesco can decide whether to increase the checkout staff and self-service checkouts.